Technical Stock Market Report

The good news is:   Like the week before, last week, the secondaries outperformed the blue chips and there was no build up of new lows.  Last week was just an extension of the week before.  New highs continued to deteriorate while the secondaries outperformed the blue chips and new lows remained dormant.

The negatives:  The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.  Dashed vertical lines have been drawn on the 1st trading day of each month.

It is not surprising NY NH declined last week.  It is the progressively declining highs that make for a bleak picture.

The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and OTC NH, in green, has been calculated from NASDAQ data.

The index moved up a little last week, but OTC NH did not.

The positives:  New highs have been declining, but so have new lows and nothing really bad happens without an expansion of new lows.

The chart below covers the past 6 months showing the OTC in blue and a 40% trend (4 day EMA) of NASDAQ new highs divided by (new highs + new lows), (OTC HL Ratio) in red.  Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.

OTC HL Ratio fell slightly to a still, very strong, 86%.  There are trading systems that impose a NO SELL filter when variations of this indicator are above 80%.

The next chart is similar to the one above except it shows the SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio ended the week unchanged and pretty strong.

Seasonality:  Next week includes the 5 trading days prior to the 2nd Friday of October during the 1st year of the Presidential Cycle.

The tables below show the daily percentage return for the 5 trading days prior to the 2nd Friday of October during the 1st year of the Presidential Cycle.

OTC data covers the period from 1963 – 2012 while SPX data runs from 1953 - 2012.  There are summaries for both the 1st year of the Presidential Cycle and all years combined.  Prior to 1953 the market traded 6 days a week so that data has been ignored.

Average returns for the coming week have been positive by all measures. 

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

Money supply growth was flat last week.

Conclusion

Last week was an extension of the week before, the blue chips were down and the secondaries were up while the breadth indicators were mostly flat.  Next weeks seasonality is positive.

I expect the major averages to be higher on Friday October 11 than they were on Friday October 4.

The blue chip indices were down while the secondaries were up last week so I am calling last weeks negative forecast a tie.

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Disclaimer: Mike Burk is an employee and principal of Alpha Investment Management (Alpha) a registered investment advisor. Charts and figures presented herein are believed to be reliable but we cannot attest to their accuracy.   Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus (qp2.com) and the Wall Street Journal (wsj.com).  Historical data is from Barron’s and ISI price books.  The views expressed dare provided for information purposes only and should not be construed in any way as investment advice.  Furthermore, the opinions expressed may change without notice.